Question 1

The money multiplier equals 1/(1 - R), where R represents the reserve ratio.

Accepted Answer

A) True 
 B)False

Question 2

When conducting an open-market sale, the Fed

Accepted Answer

A)   buys government bonds, and in so doing increases the money supply.
B)   buys government bonds, and in so doing decreases the money supply.
C)   sells government bonds, and in so doing increases the money supply.
D)   sells government bonds, and in so doing decreases the money supply.E) A) and B)
F) A) and C)

Question 3

Which list ranks assets from most to least liquid?

Accepted Answer

A)   currency, demand deposits, money market mutual funds
B)   currency, money market mutual funds, demand deposits
C)   money market mutual funds, demand deposits, currency
D)   demand deposits, money market mutual funds, currencyE) A) and B)
F) B) and C)

Question 4

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

Accepted Answer

A) True 
 B)False

Question 5

The Fed's primary tool to change the money supply is

Accepted Answer

A)   changing the interest rate on reserves.
B)   changing the reserve requirement.
C)   conducting open market operations.
D)   redeeming Federal Reserve notes.E) All of the above
F) A) and B)

Question 6

As banks create money, they create wealth.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following both increase the money supply?

Accepted Answer

A)   an increase in the discount rate and an increase in the interest rate on reserves
B)   an increase in the discount rate and a decrease in the interest rate on reserves
C)   a decrease in the discount rate and an increase in the interest rate on reserves
D)   a decrease in the discount rate and a decrease in the interest rate on reservesE) A) and B)
F) A) and C)

Question 8

Small time deposits are included in

Accepted Answer

A)   M1 but not M2.
B)   M2 but not M1.
C)   M1 and M2.
D)   neither M1 nor M2.E) B) and C)
F) A) and B)

Question 9

Money market mutual funds are included in

Accepted Answer

A)   M1 but not M2.
B)   M1 and M2.
C)   M2 but not M1.
D)   neither M1 nor M2.E) C) and D)
F) B) and C)

Question 10

As the reserve ratio increases, the money multiplier

Accepted Answer

A)   increases.
B)   does not change.
C)   decreases.
D)   could do any of the above.E) C) and D)
F) A) and C)

Question 11

Paper money

Accepted Answer

A)   has a high intrinsic value.
B)   is the primary medium of exchange in a barter economy.
C)   is valuable because it is generally accepted in trade.
D)   is valuable only because of the legal tender requirement.E) A) and D)
F) A) and C)

Question 12

If the Fed sells government bonds to the public, then reserves

Accepted Answer

A)   increase and the money supply increases.
B)   increase and the money supply decreases.
C)   decrease and the money supply increases.
D)   decrease and the money supply decreases.E) None of the above
F) A) and D)

Question 13

Which list ranks assets from most to least liquid?

Accepted Answer

A)   currency, fine art, stocks
B)   currency, stocks, fine art
C)   fine art, currency, stocks
D)   fine art, stocks, currencyE) All of the above
F) None of the above

Question 14

Which of the following is a store of value?

Accepted Answer

A)   currency
B)   U.S. government bonds
C)   fine art
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 15

Which of the following is correct?

Accepted Answer

A)   The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms.
B)   The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms.
C)   The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms.
D)   The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.E) None of the above
F) A) and D)

Question 16

Under a fractional-reserve banking system, banks

Accepted Answer

A)   hold more reserves than deposits.
B)   generally lend out a majority of the funds deposited.
C)   cause the money supply to fall by lending out reserves.
D)   All of the above are correct.E) A) and C)
F) B) and D)

Question 17

Reserves increase if the Federal Reserve

Accepted Answer

A)   raises the discount rate or auctions more credit.
B)   raises the discount rate but not if it auctions more credit.
C)   lowers the discount rate or auctions more credit.
D)   lowers the discount rate but not if it auctions more credit.E) A) and B)
F) A) and C)

Question 18

Which of the following is not correct?

Accepted Answer

A)   The president of the New York Federal Reserve bank is the only Federal Reserve Regional Bank President who gets to vote at every meeting of the Federal Open Market Committee.
B)   The Fed's policy decisions influence the economy's rate of inflation in the short run and the economy's employment and production in the long run.
C)   The Fed's primary monetary policy tool is open-market operations.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 19

Commodity money is

Accepted Answer

A)   backed by gold.
B)   the principal type of money in use today.
C)   money with intrinsic value.
D)   receipts created in international trade that are used as a medium of exchange.E) B) and C)
F) All of the above

Question 20

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Accepted Answer

A)   an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply.
B)   an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply.
C)   a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply.
D)   a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply.E) A) and B)
F) A) and C)

Exam 11: The Monetary System

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

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As banks create money, they create wealth.

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Which of the following both increase the money supply?

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The money multiplier equals 1/(1 - R), where R represents the reserve ratio.

Correct AnswerverifiedShow Answer

The Fed's primary tool to change the money supply is

Correct AnswerverifiedShow Answer

Money market mutual funds are included in

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If the Fed sells government bonds to the public, then reserves

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Reserves increase if the Federal Reserve

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Paper money

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Commodity money is

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As the reserve ratio increases, the money multiplier

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Which of the following is a store of value?

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Which of the following is correct?

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Which of the following is not correct?

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Small time deposits are included in

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Which list ranks assets from most to least liquid?

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Under a fractional-reserve banking system, banks

Correct AnswerverifiedShow Answer

When conducting an open-market sale, the Fed

Correct AnswerverifiedShow Answer

Which list ranks assets from most to least liquid?

Correct AnswerverifiedShow Answer

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Correct AnswerverifiedShow Answer

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